opic, usaid, and proposed development finance … · opic, usaid, and proposed development finance...

OPIC, USAID, and Proposed Development

Finance Reorganization

Shayerah Ilias Akhtar

Specialist in International Trade and Finance

Curt Tarnoff

Specialist in Foreign Affairs

April 27, 2018

Congressional Research Service

7-5700

www.crs.gov

R45180

OPIC, USAID, and Proposed Development Finance Reorganization


Summary Members of Congress and Administrations have periodically considered reorganizing the federal

government’s trade and development functions to advance various policy objectives. In its 2019

budget request, the Trump Administration included a proposal to consolidate the Overseas Private

Investment Corporation (OPIC) and other agency development finance functions, specifically

noting the Development Credit Authority (DCA) of the U.S. Agency for International

Development (USAID), into a new U.S. development finance agency. The policy objectives that

the new agency would aim to support include enhancing the efficiency and effectiveness of

government functions and advancing U.S. national security interests.

In February 2018, two proposed versions of the Better Utilization of Investments Leading to

Development (BUILD) Act, H.R. 5105 in the House and S. 2463 in the Senate, were introduced

on a bipartisan, bicameral basis to create a new U.S. International Development Finance

Corporation (IDFC). The nearly identical bills would consolidate all of OPIC’s functions and the

DCA, enterprise funds, and development finance technical support functions of USAID.

Stakeholders differ in their views of particular aspects of the proposal and certain issues remain

open questions.

Congress would play a major role in any reorganization of federal development finance functions.

The proposal to create a new U.S. government agency involves legislative, oversight, and

appropriations functions. Key questions for Congress may include the following:

What are the rationales for and against modifying and expanding OPIC’s

functions?

Should development finance functions be reorganized or should alternative

approaches be considered?

If reorganization is pursued, how should a new development finance institution

(DFI) be structured?

How should a proposed new DFI be funded?

What implications would a proposed new DFI have for USAID and U.S.

development objectives?

How can adequate coordination be ensured between the new DFI and other U.S.

government agencies involved in development?

What are the competitiveness and other strategic implications of the proposed

DFI?



Contents

Introduction ..................................................................................................................................... 1

Background ..................................................................................................................................... 2

Overview of Development Finance Institutions ........................................................................ 2 Key U.S. Government Agencies in Development Finance ....................................................... 4

Overseas Private Investment Corporation (OPIC) .............................................................. 4 U.S. Agency for International Development (USAID) ....................................................... 6 U.S. Government Context ................................................................................................... 8

Comparison to Selected Foreign Bilateral DFIs ....................................................................... 9

Potential Issues for Congress.......................................................................................................... 11

Modifying Development Finance Functions ............................................................................ 11 Debate Over Reorganization ................................................................................................... 12 Structuring a New DFI ............................................................................................................ 14 Funding ................................................................................................................................... 17 Impact on USAID and U.S. Development Objectives ............................................................ 17 Interagency Coordination ........................................................................................................ 19 Competitiveness and Future Rules-Setting ............................................................................. 20

Outlook .......................................................................................................................................... 21

Figures

Figure 1. OPIC Portfolio Composition ............................................................................................ 6

Figure 2. Selected Development and/or Finance Functions of the U.S. Government ..................... 8

Tables

Table 1. Comparison of OPIC and Selected Bilateral Foreign DFIs ............................................. 22

Appendixes

Appendix. Comparison: OPIC and Foreign DFIs ......................................................................... 22

Contacts

Author Contact Information .......................................................................................................... 23


Congressional Research Service 1

Introduction Members of Congress and Administrations have periodically considered reorganizing the federal

government’s trade and development functions to advance various U.S. policy objectives. In the

115th Congress, these issues have come to the fore in the context of development finance.

“Development finance” is commonly used to describe government-backed financing to support

private sector capital investments in developing and emerging economies. It can be viewed on a

continuum of public and private support, situated between pure government support through

grants and concessional loans and pure commercial financing at market-rate terms.

Development finance institutions (DFIs) are specialized entities that supply such finance. In the

United States, the primary provider of development finance is the Overseas Private Investment

Corporation (OPIC), but other agencies, such as the U.S. Agency for International Development

(USAID), also provide development finance.

President Trump renewed the debate over the future of U.S. development finance at the Asia-

Pacific Economic Cooperation (APEC) CEO Summit in Danang, Vietnam in November 2017,

where he announced that the United States is committed “to reforming our development finance

institutions so that they better incentivize private sector investment in your economies and

provide strong alternatives to state-directed initiatives that come with many strings attached.”1

The Trump Administration’s National Security Strategy, released in December 2017, identified

modernizing U.S. development finance tools as a priority to advance U.S. global influence. It

noted that, “[w]ith these changes, the United States will not be left behind as other states use

investment and project finance to extend their influence.”2 Competition for influence with China,

which is a major supplier of development finance, especially appears to be a prominent driver of

the Administration’s interest in development finance reform. Moreover, potential reorganization

of the executive branch has been a broader interest of the Trump Administration.3 The President’s

FY2019 budget proposed the consolidation of OPIC and other agency development finance

functions, specifically noting the Development Credit Authority (DCA) of USAID, into a new

U.S. development finance agency to advance a number of U.S. policy objectives.4

In February 2018, two proposed versions of the Better Utilization of Investments Leading to

Development (BUILD) Act, H.R. 5105 in the House and S. 2463 in the Senate, were introduced

on a bipartisan, bicameral basis to create a new U.S. International Development Finance

Corporation (IDFC). The nearly identical bills in the House and Senate would consolidate all of

1 The White House, “Remarks by President Trump at APEC CEO Summit,” press release, November 10, 2017,

https://www.whitehouse.gov/briefings-statements/remarks-president-trump-apec-ceo-summit-da-nang-vietnam/. 2 The White House, National Security Strategy of the United States of America, December 2017, p. 39. 3 Executive Order 13781 of March 13, 2017, “Comprehensive Plan for Reorganizing the Executive Branch,” 82

Federal Register 13959, March 16, 2017. 4 See Office of Management and Budget (OMB), An American Budget – President’s Budget FY2019, p. 81, which

states,

The DFI [development finance institution] would not only reduce fragmentation, achieve

operational efficiencies, and provide cost savings to the taxpayer, but it would also improve

coordination and policy alignment. The DFI also includes reformed and modernized tools to ensure

that U.S. development finance effectively catalyzes, but does not displace, private sector resources,

and does not create undue risk for the U.S. taxpayer. A reformed, consolidated DFI more

effectively supports economic growth and development outcomes in emerging markets. It would

also advance U.S. national security interests, and support U.S. companies, jobs, and exports.

http://www.congress.gov/cgi-lis/bdquery/z?d115:S.2463:



OPIC’s functions and the Development Credit Authority (DCA), enterprise funds, and

development finance technical support functions of USAID. A primary difference between the

bills is that the House version would authorize the new DFI for seven years, while the Senate

version would authorize it until September 30, 2038.

The Trump Administration issued a statement strongly supporting the BUILD Act, noting that it

was broadly consistent with the Administration’s goals and FY2019 budget proposal. At the same

time, the Administration called for some modifications to the bills to enhance the proposed DFI’s

alignment with national interests and institutional linkages, as well as to address risk management

and other concerns.5 Stakeholders differ in their views of particular aspects of the DFI proposal

and certain issues remain open questions.6

While some executive branch reorganizations can happen administratively, the changes

contemplated here would likely require changes to U.S. law.7

Background

Overview of Development Finance Institutions

At the bilateral level, national governments can operate DFIs. The United Kingdom was the first

country to establish a DFI in 1948. Many countries have followed suit. These DFIs are typically

wholly or majority government-owned. They operate either as independent institutions or as a

part of larger development banks or institutions. Their organizational structures have evolved, in

some cases, due to changing perceptions of how to address identified development needs in the

most effective way possible. Unlike OPIC, other bilateral DFIs tend to be permanent and not

subject to renewals by their countries’ legislatures.

DFIs also can operate multilaterally, as parts of international financial institutions (IFIs), such as

the International Finance Corporation (IFC), the private sector arm of the World Bank. They can

operate regionally through regional development banks as well. Examples of these banks include

the African Development Bank (AfDB), Asian Development Bank (AsDB), European Bank for

Reconstruction & Development (EBRD), and the Inter-American Development Bank (IDB).8

The primary role of nearly all DFIs is promoting economic development by supporting foreign

direct investment (FDI) in underserved types of projects, regions, and countries; undercapitalized

sectors; and countries with viable project environments but low credit ratings (see text box). DFIs

use a range of financial instruments to support private investment in development projects;

depending on the DFI, these may include equity, direct loans, loan guarantees, political risk

insurance, and technical assistance. Varied as they may be, DFIs aim to be catalytic agents in

promoting private sector investment in developing countries. Their support is aimed to increase

private sector activity and public-private partnerships that would not happen in the absence of

DFIs because of the actual or perceived risk associated with the activity.

In providing support for development, DFIs typically pursue “additionality,” that is, limiting their

support to circumstances when commercial financing for a project is not available on

5 White House, “Investments Leading to Development (BUILD) Act of 2018,” April 10, 2018. 6 Adva Saldinger, “Support for New U.S. Development Finance Bill, Even as Some Details Are Questioned,” March 1,

2018, Devex. 7 CRS Report R44909, Executive Branch Reorganization, by Henry B. Hogue. 8 CRS Report R41170, Multilateral Development Banks: Overview and Issues for Congress, by Rebecca M. Nelson.



commercially viable terms in order to complement, not compete with, the private sector. The

presence of DFIs is considered to provide a guarantee of a long-term commitment to development

that private capital would otherwise not bear on its own.9

At the same time, DFIs generally are market-oriented in their project support, such as in the fees

they charge. They generally aim to be financially sustainable or profitable, investing in projects

that generate returns. As such, DFIs often have a double bottom line of development impact and

financial sustainability or profitability—prompting debate within the development community

about the extent to which these goals are complementary or in tension.10

DFIs vary in the size of their activities, as well as their portfolio compositions—whether by

financial instrument, geographic region, or economic sector. They often cofinance investment

projects with each other, both at the multilateral and bilateral level. Such financing pools

additional funds and diversifies risks across DFIs, such as for certain large-scale infrastructure

projects that may be too big and risky for one DFI to finance alone. Unlike government-backed

export financing, no international rules govern DFIs’ investment financing activities.11

Examples of DFI Activity

Energy Investment. Guinea experiences persistent power supply issues. Less than one-third of the population has

access to electricity. Under the Power Africa initiative, OPIC is supporting the development of a 50 megawatt power

plant in Guinea’s capital of Conakry to help increase baseload power in the country. Electricity generated from the

plant is to be sold to the public utility company under a five-year power purchase agreement. OPIC is providing $50

million in financing and $50 million in political risk insurance for the project. Alongside OPIC, the UK’s development

finance institution, CDC (formerly known as the Commonwealth Development Corporation), is providing a $39

million loan for the project. The project sponsor, Endeavour Energy, an Africa-focused power company owned by the

investment firm Denham Capital, is providing $32 million in equity investment for project. The support extended by

OPIC and CDC reportedly helped bring the project to a financial close.

Financial Services Investment. Access to credit for small businesses in India is viewed as a constraint on India’s

economic development, particularly for women-owned businesses. About a quarter of India’s 3 million women-owned

businesses, which employ about 8 million people, are able to obtain the credit they need to support their businesses.

In 2017, OPIC and Wells Fargo agreed with YES Bank, India’s fourth-largest private sector bank, on support to

expand access to credit for women-owned businesses and small businesses in low-income states in India. OPIC is to

provide $75 million in financing and up to $75 million in syndicated financing jointly arranged by Wells Fargo and

OPIC to YES Bank. The World Bank’s IFC is also providing financing support for mobilizing capital for women

entrepreneurs.

Source: OPIC, “OPIC Commitments to Power Africa Have Reached $2.4 Billion to Date,” press release, March 1, 2018; OPIC,

“Active Projects”; CDC, “CDC Announces U.S. $39 Million Investment in 50MW Tè Power Plant in Guinea,” press release, March

28, 2018. OPIC, “YES Bank Partners with OPIC and Wells Fargo to Support Financing of Women Entrepreneurs and SMEs,” press

release, July 13, 2017.

For decades, the major players in development funding were international financial institutions

and bilateral government donors. By the end of the 1980s, private capital flows began to

accelerate, and bilateral DFIs, including those of the United States and European countries,

became more active in development finance. With their growing economic power, emerging

economies increasingly are now also major suppliers of such finance.

9 Dalberg Global Advisors, The Growing Role of Development Finance Institutions in International Development

Policy, Copenhagen, October 22, 2009. 10 Daniel Runde, “Development Finance Institutions Come of Age,” Forbes, October 17, 2014. 11 The OECD Arrangement on Officially Supported Export Credits, a voluntary agreement among the United States

and some other OECD members, sets limitations on the terms and conditions for official export credit activity, such as

minimum interest rates and maximum repayment terms. It aims to ensure that price and quality, not financing terms,

guide purchasing decisions. The United States abides the Arrangement for its Export-Import Bank (Ex-Im Bank).



It is difficult to find centralized, comprehensive, and comparable sources of information on DFI

activities. According to one study, the amount of financing committed by some major DFIs grew

from about $10 billion in 2000 to nearly $70 billion 2014.12 That year, DFI annual commitments

for private sector investment in developing countries were comprised of 40% by multilateral DFIs

(including the IFC and the Multilateral Investment Guarantee Agency, MIGA); 35% by bilateral

DFIs (15 European DFIs, OPIC, and Japan’s DFI); and 25% by regional finance institutions.13 By

many accounts, the magnitude and scope of China’s development finance outsizes that of other

historical suppliers of development finance. For example, at the end of 2016, assets of the China

Development Bank (CDB, discussed below) stood at 14.3 trillion yuan ($2.3 trillion).14 Measured

by assets, the CDB is larger than the World Bank’s IFC, whose assets totaled $90.4 billion in

2016.15

The growth of direct investment flows has outpaced that of official development assistance

(ODA) provided by the 29 members of the Organisation for Economic Co-operation and

Development (OECD) Development Assistance Committee (DAC), which includes the United

States. As ODA has decreased and FDI to developing countries has increased, development

finance has become more prominent as a way to encourage private investment to go to

undercapitalized areas. For example, global investments in infrastructure total about $2.5 trillion

a year, but do not meet demand, such as in developing countries experiencing population growth,

expanding economies, and industrialization. Based on current trends, there is a shortfall in

infrastructure investment of about $350 billion a year. That gap triples if the United Nations

Sustainable Development Goals (SDGs) are taken into account.16

Key U.S. Government Agencies in Development Finance

OPIC and USAID are at the center of the current development finance reorganization debate.

While outside of the scope of this report, it is important to note that the United States also

supports development finance at the multilateral and regional level through its contributions to

entities such as the IFC and various regional development banks.17 This section provides an

overview of OPIC and USAID and, for context, also briefly discusses some other agencies that

employ tools similar to these agencies but generally for different purposes.

Overseas Private Investment Corporation (OPIC)

OPIC is the official U.S. DFI. Established by the Foreign Assistance Act of 1961, as amended

(FAA; 22 U.S.C. §2191 et seq.), it officially began operations in 1971 (see text box). It seeks to

promote economic growth in developing economies by providing, on a demand-driven basis,

project and other investment financing for overseas investments and insuring against the political

risks of investing abroad, such as currency inconvertibility, expropriation, and political violence.

OPIC provides loans, guarantees, and political risk insurance for qualifying investments. OPIC

12 Conor M. Savoy, Paddy Carter, and Alberto Lemma, Development Finance Institutions Come of Age, Center for

Strategic and International Studies (CSIS), October 2016, p. 5. This measure is based on the activities of OPIC, a range

of European bilateral DFIs, Japan’s DFI, and multilateral DFIs, but does not appear to include China’s development

finance activities. 13 Association of European DFIs (EDFI), 2016 Flagship Report, p. 10. 14 CDB, 2016 Annual Report, p. 6. 15 IFC, 2016 Annual Report, p. 31. 16 McKinsey Global Institute, Bridging Global Infrastructure Gaps, June 2016. 17 CRS Report R41170, Multilateral Development Banks: Overview and Issues for Congress, by Rebecca M. Nelson.



does not take equity positions in investment funds (pools of capital that make direct equity and

equity-related investments in companies). Rather, OPIC supports investment funds through

financing. OPIC also generally does not conduct technical assistance. Congress most recently

extended OPIC’s authority to conduct its programs through September 30, 2018 (P.L. 115-141).

Although OPIC uses financial tools and is oriented toward private enterprise, it is a foreign

assistance tool. The FAA requires it to conduct its work under the Secretary of State’s policy

guidance. By statute, OPIC is governed by a 15-member Board of Directors, with 8 “private

sector” Directors (with requirements for small business, labor, and other representation) and 7

“federal government” Directors (including the OPIC President, USAID Administrator, U.S. Trade

Representative, and a Labor Department officer).

OPIC’s Historical Origins and USAID Ties

Federal support for U.S. private investment overseas predates OPIC’s official creation. It started after World War II

with the Marshall Plan, which included political risk insurance for U.S. investments in Europe. USAID absorbed these

functions when it was established in 1961. During the early 1960s, Congress called for expanding USAID’s investment

guarantee program and increasing private capital flows to developing countries to support economic development.18

In his 1969 message to Congress on aid, amid congressional disillusionment about U.S. foreign aid, President Nixon

recommended creating OPIC to assume USAID’s investment guaranty and promotion functions, with “businesslike

management of investment incentives” and a new emphasis on self-sufficiency and risk-management.

Members of Congress debated the merits of creating OPIC. Supporters viewed the business-like nature of OPIC, as a

partnership between private management and official policymakers, as beneficial. Critics expressed concern about

removing from USAID an important tool of foreign aid and giving it to an organization governed by business concerns.

While some thought that creating a small specialized organization would bring operational advantages, others were

skeptical about the potential for increasing costs and adding to the federal bureaucracy. For some, a rationale for

OPIC was that countries such as France, Germany, and the UK used comparable entities to promote private

investment in development. Ultimately, support for OPIC prevailed.

In FY2017, OPIC reported authorizing $3.8 billion in new commitments for 112 projects, and its

exposure reached a record high of $23.2 billion (see Figure 1). OPIC estimated that it helped

mobilize $6.8 billion in capital and supported 13,000 new jobs in host countries that year.

OPIC’s activities are backed by the full faith and credit of the U.S. government. Projects must

meet certain requirements, including that investors must have a meaningful U.S. connection in

order to be eligible for OPIC support. OPIC must take certain considerations into account when

determining whether to support a project (e.g., U.S. economic impact, environmental impact,

worker rights, and development impact on country of investment destination). Projects are subject

to certain limitations as well. The FAA directs OPIC to operate “on a self-sustaining basis, taking

into account ... the economic and financial soundness of projects” and with regard to risk

management principles. OPIC charges interest, premia, and other fees for its services to cover the

cost of its operations. It assesses credit and other risks of proposed transactions, monitors

commitments, and guards against potential losses through reserves.19

Unlike USAID (discussed below), OPIC’s international presence is limited. OPIC states that it

relies on expertise of other U.S. government agencies at U.S. missions abroad.

18 U.S. Congress, House Committee on Foreign Affairs, The Overseas Private Investment Corporation: A Critical

Analysis, committee print, 93rd Cong., 1st sess., September 4, 1973, 88-341 (Washington: GPO, 1973). 19 CRS Report 98-567, The Overseas Private Investment Corporation: Background and Legislative Issues, by Shayerah

Ilias Akhtar; and CRS In Focus IF10659, Overseas Private Investment Corporation (OPIC), by Shayerah Ilias Akhtar.



Figure 1. OPIC Portfolio Composition

Source: CRS, based on data from OPIC’s FY2018 congressional budget justification (CBJ).

Notes: OPIC’s portfolio composition by product is based on OPIC’s portfolio on March 31, 2017 ($22.5 billion).

The CBJ did not specify the date of exposure used for the portfolio breakdown by region and sector. Finance

involves OPIC support through direct loans and loan guarantees. Funds are a specific type of finance that

partners OPIC debt with private equity from a private source.

U.S. Agency for International Development (USAID)

USAID has been actively involved in providing development finance in various forms since its

establishment in 1961.20 In its first 20 years, provision of development loans to developing

country governments, mostly for infrastructure projects, made up a significant proportion of its

operations. In the 1980s, with the Reagan Administration’s Private Enterprise Initiative, the

agency greatly expanded efforts to develop the private sector in developing countries, including

lending to micro, small, and medium business. At this time, the agency possesses a range of

development finance capacities:

The Development Credit Authority (DCA), managed by the DCA office in the Bureau for

Economic Growth, Education, and the Environment (E3), supports bank lending for specific

development purposes by employing the promise of U.S. government repayment typically of up

to half of each loan in case of default. By lessening the liability to the lending bank, these partial

loan guarantees aim to encourage banks to make loans for purposes and clients that they may

have previously avoided as commercially unviable or too risky. In FY2016, nearly half of DCA

guarantees issued by value (47%) promoted activity in energy and 26% focused on agriculture,

while fully half of the value of guarantee assistance went to sub-Saharan Africa and 25% to Asia.

Enterprise Funds are private sector-managed entities established with the purpose of stimulating

free market economic growth. Following a model of venture capital funds, they featured equity

investment as a significant feature of their activities. The funds also, in varying degrees, provide

20 USAID was established by the Secretary of State under State Department Delegation of Authority no. 104 as a

consequence of Executive Order 10973, also on November 3, 1961, and both pursuant to the Foreign Assistance Act of

1961 (FAA, P.L. 87-195). USAID was delegated responsibility for implementing multiple sections of the FAA,

including broad authority to administer development assistance programs. USAID was formally established as an

independent agency in 1998 (§1413 of P.L. 105-277).



support for mortgage securitization, microfinance, equipment leasing, credit cards, and other

efforts to introduce new financial instruments. Ten such funds, supported by $1.2 billion in

taxpayer assistance, were launched in Eastern Europe and the former Soviet Union in response to

the fall of communist governments and economies in the late 1980s to early 1990s. Two

enterprise funds have been established in recent years in Tunisia and Egypt.21

Micro, Small, and Medium Enterprise (MSME) Finance and Technical Support. Since the

1960s, USAID has provided financial and technical assistance to entrepreneurs through a range of

intermediaries—cooperatives, commercial banks, credit unions, business associations, and other

nongovernmental organizations (NGOs)—that offer loans and business development services. In

addition, the agency has been instrumental in promoting policy reforms that facilitate a legal

environment conducive to private sector lending in the developing world. For example, to help

small and medium enterprises (SME) in rural areas of Nicaragua with limited access to finance

and investment capital, the Enterprise and Employment Program (2009-2013) provided direct

technical assistance and training to banks so they could create SME lending programs. The

USAID mission also supported development of a new credit scoring tool to assist lenders in

making better lending decisions, leading to $39 million in new lending.22

Catalyzing Private Sector Finance. For many decades—from the commercialization of

contraceptive production and distribution in support of family planning, as well as the sale and

manufacturing of oral rehydration therapy (ORT), in the 1980s, to the public-private partnerships

of the Global Development Alliance in the early 2000s—USAID has sought to increase its

development impact by leveraging the resources of the private sector.23 In drawing the financial

support of the private sector, especially U.S. business, the agency has exploited its “convening

power” as the leading development agency in the U.S. government with a mission presence in

dozens of countries and expertise in the full range of development sectors.

Efforts to catalyze private sector finance are ongoing throughout the agency, at both mission and

central bureau levels. In 2017, the USAID mission in Pakistan established three equity funds with

a contribution of $24 million for each fund, matched or exceeded by private investors to help the

expansion of small and medium business in that country. In Ethiopia, a $6 million Innovation

Investment Fund has attracted private sector cost sharing of about $25 million in support of

medium to large-scale businesses operating within pastoral areas.24

Launched in 2014, the Africa Bureau’s Private Capital Group for Africa (PCGA) works to attract

private capital to support development-related projects by identifying profitable transactions.

With a team based in South Africa, it seeks to facilitate transactions by eliminating risk and other

barriers to finance; to improve cities’ ability to finance and service debt for public service

projects; and to encourage the use of South African pension funds—a major source of finance

capital—in development projects.25 The USAID Global Health Bureau’s Center for Accelerating

Innovation and Impact is exploring ways of funneling private sector finance to meet global health

21 USAID, The Enterprise Funds in Europe and Eurasia: Successes and Lessons Learned, September 12, 2013, pp. 12-

13. 22 USAID/Nicaragua, Promoting Equitable Economic Growth: Nicaragua Enterprise and Employment Program Final

Report, August 2013, p. 35. 23 For historical background, see U.S. Congress, House Committee on Foreign Affairs, The Private Enterprise Initiative

of the Agency for International Development, committee print, 101st Cong., September 1989. 24 USAID, Finance Vignette Handbook: A Financing Growth Training, available at

https://www.usaid.gov/documents/1865/finance-vignette-handbook. 25 See https://www.usaid.gov/news-information/fact-sheets/private-capital-group-africa.



needs, including a pilot program to provide working capital to independent pharmacies in order to

improve access to medicine in Africa.26

In 2015, a new Office of Private Capital Development and Microenterprise (PCM) was

established in the E3 Bureau specifically to find new ways to mobilize private sector capital and

expertise in support of development and facilitate USAID mission activity in this area. It has, for

example, partnered with CrossBoundary Energy to pilot a new model of financing solar

installations for enterprises in Africa and, working with Sarona Asset Management, it is piloting a

currency risk mitigation tool that may help attract more institutional investment (pension funds,

insurance companies) in development programs.27

U.S. Government Context

In addition to OPIC and USAID, some other U.S. government agencies administer functions

similar to development finance but generally for different purposes (see Figure 2).

Figure 2. Selected Development and/or Finance Functions of the U.S. Government

Source: CRS, based on agency websites and publications.

Note: OPIC—Overseas Private Investment Corporation; Ex-Im Bank—Export-Import Bank, USDA—U.S.

Department of Agriculture, SBA—Small Business Administration; USAID—U.S. Agency for International

Development; and TDA—Trade and Development Agency.

This visual is a simplified representation of agency responsibility for selected functions, as of the date of

publication of this report. Under the FAA, OPIC has existing legal authority to act as a limited equity partner for

investment funds, but the authority requires an appropriation.

Several agencies also provide financing and insurance, notably the Export-Import Bank of the

United States (Ex-Im Bank). Known as the official U.S. export credit agency (ECA), Ex-Im Bank

26 See https://www.usaid.gov/what-we-do/global-health/global-health-newsletter/gh-newsletter-global-health-financing. 27 See https://www.usaid.gov/pcm.



helps finance U.S. exports of goods and services, not U.S. private sector investment.28 Unlike

OPIC and USAID, Ex-Im Bank is not authorized under the FAA, but rather has its own charter,

the Export-Import Bank Act of 1945, as amended (12 U.S.C. §635 et seq.). It focuses on

supporting U.S. exports to contribute to U.S. employment, although its activities can have U.S.

foreign policy implications. Other agencies, such as the U.S. Department of Agriculture (USDA)

and the Small Business Administration (SBA), also provide export financing, but in a more

limited manner and specific to their constituencies, that is, for U.S. exports of agricultural

products and exports by U.S. small businesses, respectively.29

The U.S. Trade and Development Agency (TDA) is among the agencies that also provide

technical assistance.30 Authorized under the FAA (22 U.S.C. §2421), TDA has a dual mission in

supporting both U.S. foreign policy and trade objectives, as its name would suggest. TDA aims to

link U.S. businesses to export opportunities overseas, including by infrastructure development,

that lead to economic growth in developing and middle-income countries. TDA funds pre-export

activities, such as feasibility studies and pilot projects.

Comparison to Selected Foreign Bilateral DFIs

This section highlights selected foreign bilateral DFIs (see Appendix for comparative table).

Europe. The most direct counterparts and perhaps most easily comparable DFIs to OPIC are

arguably the bilateral European DFIs that are members of the Association of European

Development Finance Institutions (EDFI).31 Unlike OPIC, European DFIs can take equity

positions and offer some technical assistance.32 However, they do not offer political risk insurance

as OPIC does.33 Collectively, the EDFI members’ portfolios reached $45 billion in 2015, more

than double OPIC’s $20 billion portfolio in 2015—through OPIC’s portfolio was larger than that

of any individual EDFI member. Like OPIC, the European DFIs overall tend to be most

concentrated in Africa and Latin America. The UK’s DFI is distinct in its exclusive focus since

2012 on Africa and South Asia, which it says allows it to focus on regions where the world’s

poorest people live. Financial services was the largest sector of support for EDFI members

collectively, as for OPIC. Also, comparable to OPIC’s focus on economic and social governance

in its support of projects, EDFI states that its members have adopted a “shared set of principles

for responsible financing, which underlines that respect for human rights and environmental

sustainability is a prerequisite for financing by EDFIs.”34

28 CRS Report R43581, Export-Import Bank: Overview and Reauthorization Issues, by Shayerah Ilias Akhtar; and CRS

In Focus IF10017, Export-Import Bank of the United States (Ex-Im Bank), by Shayerah Ilias Akhtar. 29 CRS Report R44985, USDA Export Market Development and Export Credit Programs: Selected Issues, by Renée

Johnson; and CRS Report R43155, Small Business Administration Trade and Export Promotion Programs, by Sean

Lowry. 30 CRS In Focus IF10673, U.S. Trade and Development Agency (TDA), by Shayerah Ilias Akhtar. 31 EDFI consists of the following 15 DFIs: BIO (Belgium), CDC (UK), COFIDES (Spain), DEG (Germany),

FINNFUND (Finland), FMO (the Netherlands), IFU (Denmark), Norfund (Norway), OeEB (Austria), PROPARCO

(France), SBI (Belgium), Sifem (Switzerland), SIMEST (Italy), SOFID (Portugal), and SWEDFUND (Sweden). 32 Under the FAA, OPIC has existing legal authority to act as a limited equity partner for investment funds, but the

authority requires an appropriation. 33 At the multilateral level, the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank

Group, provides political risk insurance to investors and lenders to promote FDI for development purposes. 34 EDFI, 2016 Flagship Report, p. 24.



China. China, which has become a major, if not the leading, global supplier of development

finance, provides development finance through several entities. At the national level, the key

entity is China Development Bank (CDB), a state-owned “policy bank” that conducts

development finance for specific purposes. More recently, China established two new multilateral

development banks, the Asian Infrastructure Investment Bank (AIIB) and the New Development

Bank (NDB), also known as the BRICS development bank.35 Data on China’s development

finance activities are limited and estimates vary widely, but China may have provided upwards of

$100 billion in financing in recent years.36 China’s development finance activities have been

prominent in their linkages to major Chinese national efforts, notably the Belt and Road Initiative

(BRI).37 Announced in 2013, the BRI is China’s vision for economic connectivity across Asia,

Africa, Europe, and other parts of the world over land and sea routes, including major financing

for infrastructure. It is unclear how much funding China plans to commit to BRI, with reports of

Chinese investments potentially reaching $4 trillion, if not more.38 A number of China’s financial

institutions are involved in BRI.39 CDB reportedly has provided support for 100 BRI projects

totaling $30 billion.40 Much of China’s support for development is directed toward infrastructure

and energy projects, with involvement of Chinese firms, including state-owned enterprises

(SOEs). China’s development finance activity in Asia, Africa, and Latin America has been a focal

point for development finance watchers, but its range is broader, particularly in light of the BRI.

China’s support for overseas investment often is not associated with the same environmental and

social standards to which OPIC and many other DFIs subscribe. On one hand, some recipient

governments may welcome that Chinese support is not as conditional as that of other DFIs on

environmental and social requirements. At the same time, projects supported by China have

raised questions about environmental and social risks, including displacement of large

populations due to major infrastructure work, such as hydropower projects.41 China’s financing

also appears to take on risks that other DFIs may not want to take. Many of the countries in which

China invests have high debt-to-GDP ratios, raising questions about debt sustainability.

Japan. Japan provides development finance through its Japanese Bank for International

Cooperation (JBIC), which is wholly owned by the Japanese government. JBIC was established

in 2012, combining Japan’s investment and export financing functions. JBIC characterizes itself

as a “policy-based institution” that conducts its operations based on policy needs in response to

economic and financial situations domestically and internationally. A major focus of JBIC’s

activities is projects related to securing medium- to-long-term supplies of energy and mineral

resources. The composition of JBIC’s commitments by financial instrument type has changed

over time. In earlier decades, export loans comprised the majority of JBIC’s commitments, while

presently overseas investment loans represent the bulk of new commitments. By geographic

35 See CRS Report R44754, Asian Infrastructure Investment Bank (AIIB), by Martin A. Weiss, and CRS In Focus

IF10154, Asian Infrastructure Investment Bank, by Martin A. Weiss. 36 Rohini Kamal and Kevin P. Gallagher, “China Goes Global with Development Banks,” The Bretton Woods

Observer, April 5, 2016. 37 CRS In Focus IF10273, China’s “One Belt, One Road”, by Susan V. Lawrence and Gabriel M. Nelson. 38 Jonathan Hillman, “China’s Belt and Road Initiative: Five Years Later,” statement before the U.S.-China Economic

and Security Review Commission, January 25, 2018. 39 A number of China’s financial institutions are involved in the BRI. These include the Export-Import Bank of China,

China Export & Credit Insurance Corporation, and the Silk Road Fund. 40 Office of the Leading Group for the Belt and Road Initiative, Building the Belt and Road: Concept, Practice and

China’s Contribution, May 2017, p. 32. 41 Sabrina Snell, China’s Development Finance: Outbound, Inbound, and Future Trends in Financial Statecraft, U.S.-

China Economic and Security Commission, December 16, 2015, p. 2.



region, Asia represented the largest share of JBIC’s FY2016 commitments, followed by North

America and Europe.42

Potential Issues for Congress This section discusses issues raised by the potential reorganization of U.S. government

development finance functions. While many of the issues draw from the Administration’s

development finance reform proposal and the BUILD Act bills, the discussion has applicability to

other proposals Congress may consider for development finance reorganization.

Modifying Development Finance Functions

At the outset, Congress may consider the rationales for and against the United States being

involved in development finance and modifying that involvement.

Supporters of “upgrading” OPIC assert that outdated rules, limited resources and authorities, and

lack of a long-term authorization constrain the agency. They have opposed proposals to eliminate

OPIC or to consolidate it into a broader trade agency.43 They argue that OPIC helps fill in gaps in

private sector support that arise from market failures, as well as helps U.S. firms compete against

foreign firms backed by foreign DFIs for investment opportunities—thereby advancing U.S.

foreign policy, national security, and economic interests. While even a strengthened OPIC may

not be able to compete “dollar-for-dollar” with China’s DFI activity, supporters argue that the

United States “can and should do more to support international economic development with

partners who have embraced the private sector-driven development model.”44

At the same time, OPIC has been the subject of long-standing criticism. Opponents of OPIC

dispute the notion that the federal government should be involved in financing and insuring

private sector investments. They argue that OPIC diverts capital away from efficient uses and

crowds out private alternatives, take issue with OPIC assuming risks unwanted by the private

sector, and question the development benefits of its programs.45 Critics have called for

terminating OPIC’s functions or privatizing them, rather than boosting them through a new DFI.46

From an economic perspective, the impact of government-backed financing on markets is often

debatable. Some economists contend that officially backed financing by other countries is likely

to have little effect on the overall level of U.S. investment, although certain foreign government

42 Ibid., pp. 14-15. 43 In 2012, President Obama sought authority to reorganize and consolidate, into one department, the trade-related

functions of OPIC and five other federal agencies: Department of Commerce, Ex-Im Bank, Small Business

Administration (SBA), TDA, and Office of the United States Trade Representative (USTR). See, for an example of

reaction, Ben Leo, “Export Promotion is Not the Same Thing as Building Markets Abroad,” Center for Global

Development, February 18, 2011; and Daniel F. Runde, “Making the Case for OPIC,” CSIS, May 12, 2011. 44 U.S. Congress, House Committee on Foreign Affairs, Financing Overseas Development: The Administration's

Proposal, Opening Statement of Ed Royce, Chairman of the House Foreign Affairs Committee, 115th Cong., 1st sess.,

April 11, 2018. 45 For example, see Bryan Riley and Brett D. Schaefer, Time to Privatize OPIC, The Heritage Foundation, May 19,

2014; and Ryan Young, The Case Against the Overseas Private Investment Corporation, Competitive Enterprise

Institute, No. 208, September 24, 2015. 46 The feasibility of privatizing OPIC has been previously analyzed. See J.P. Morgan Securities, Inc., Overseas Private

Investment Corporation: Final Report on the Feasibility of Privatization, New York, February 7, 1996, cited in

GAO, Overseas Investment: Issues Related to the Overseas Private Investment Corporation's Reauthorization,

GAO/NSIAD-97-230, September 1997, p. 24, http://www.gao.gov/archive/1997/ns97230.pdf.



policies may have harmed specific U.S. industries, and even if it has an impact, the net benefit

may be small or negative due to opportunity costs. Other experts contend that U.S. government

support is critical for U.S. investors to offset the effects of similar programs used by foreign

governments.

While some development financing is complementary, one point of debate is the extent to which

there is direct competition for investment projects between U.S investors and foreign investors

backed by other governments. Moreover, a range of factors beyond investment financing may

influence competitiveness. Proof that state-backed foreign investment financing places U.S. firms

at a competitive disadvantage in overseas markets is difficult to identify, in part because of the

lack of transparency for DFI activities. Nevertheless, the sheer magnitude of financing provided

by emerging economies suggests that such financing may have discernable impacts on U.S.

commercial activity in the long term.

Debate Over Reorganization

In the event that Congress determines that U.S. development finance functions should be

reformed, a key question is whether consolidation is the best way to proceed, or if reforms should

be made within individual agencies, keeping their current structures intact. A proposal to create a

new DFI has been in the making for some time. In recent years, various civil society stakeholders,

including some analysts at the Center for Global Development (CGD), have proposed

consolidating the functions of OPIC and other agencies that they view as development finance

into a new DFI.47

Congressional hearings have been held in recent years on development assistance reform that

have considered changes to OPIC.48 The Administration’s FY2019 budget proposal to create a

new DFI was the outgrowth of interagency discussions, led by the Office of Management and

Budget (OMB) and the National Security Council (NSC) and involving OPIC, USAID, the State

Department, and others, on challenges related to development; these discussions were prompted

by the President’s executive order on government reorganization.49 Against this backdrop, the

BUILD Act was introduced in the House and Senate in February 2018 (see text box).

The Trump Administration issued a statement strongly supporting the BUILD Act, noting that it

was broadly consistent with the Administration’s goals and FY2019 budget proposal while also

calling for some modifications to the bills. From the Administration’s perspective, the bills should

be modified to enhance the new DFI’s alignment with U.S. national interests, as well as its

institutional links with USAID and other development agencies. The Administration also held

that the bills require other changes, including to the DFI’s funding structure, to enhance the DFI’s

risk management and prevent it from displacing private sector resources.50

47 See, for example, Benjamin Leo and Todd Moss, Bringing US Development Finance into the 21st Century: Proposal

for a Self-Sustaining, Full-Service USDFC, Center for Global Development, March 2015. 48 See, for example, U.S. Congress, Senate Committee on Foreign Relations, Subcommittee on International

Development and Foreign Assistance, Economic Affairs, International Environmental Protection, and Peace Corps,

Different Perspectives on International Development, 113th Cong., 1st sess., May 22, 2013; U.S. Congress, Senate

Committee on Foreign Relations, An Assessment of U.S. Economic Assessment, 114th Cong., 2nd sess., July 7, 2016. 49 U.S. Congress, House Committee on Foreign Affairs, Financing Overseas Development: The Administration's

Proposal, Testimony of Ray W. Washburne, President & CEO, OPIC, 115th Cong., 1st sess., April 11, 2018. 50 White House, “Investments Leading to Development (BUILD) Act of 2018,” April 10, 2018.



Overview of BUILD Act Proposal (H.R. 5105/S. 2463)

As introduced, the BUILD Act would create a new International Development Finance Corporation (IDFC), a wholly

owned U.S. government corporation, by consolidating all of OPIC’s functions and USAID’s DCA, enterprise funds,

and development finance technical support functions. The IDFC would aim to support the role of private sector

capital and skills in the economic development of developing countries, to promote U.S. development assistance

objectives and advance foreign policy and economic interests.

Management. The IDFC would be managed by a nine-member Board of Directors, composed of the Chief Executive

Officer of the IDFC, four U.S. government officials (the Secretary of State, USAID Administrator, Secretary of the

Treasury, and Secretary of Commerce—or their designees), and four private sector members. In contrast to OPIC,

which has a 15-member Board, there would be no requirement for the IDFC’s private sector members to include

representation from small business, organized labor, or cooperatives. The Board Chairperson would be chosen from

among the Board members (as in the case of OPIC), while the Vice Chairperson would be the USAID Administrator

or his/her designee. The BUILD Act also would establish a Chief Risk Officer, as well as risk and audit committees.

The IDFC would have its own Inspector General (IG); this would be in contrast to OPIC, which is under the

supervision of the USAID IG.

Authorities. The IDFC’s authorities would expand beyond OPIC’s existing authorities to make loans and guarantees

and issue insurance or reinsurance; they would also include the authority to take minority equity positions in

investments, subject to limitations. Drawing from USAID, the IDFC would be authorized to establish and operate

enterprise funds as well. In addition, the IDFC would have the authority to conduct feasibility studies on proposed

investment projects (with cost-sharing) and provide technical assistance. Like OPIC, the IDFC’s authorities to support

development finance would be backed by the full faith and credit of the U.S. government.

Conditions. The IDFC’s activities would be subject to statutory requirements and limitations. Like OPIC, it would

have to take into account the economic and financial soundness of projects, as well as prioritize its support in low-

income or lower-middle-income economies. However, it would have a higher bar for providing support in upper-

middle-income countries—restricting support in those countries unless the President makes a national interest

determination and such support is likely to be highly developmental or beneficial to the poorest population in that

country. Compared to OPIC, the IDFC would be subject to greater specifications on interest rates and ensuring the

market-based nature of the new entity’s support. While OPIC support is limited to investors that have a U.S.

connection, the IDFC would only have to provide preferential consideration to projects sponsored by or involving

the U.S. private sector. The IDFC would also have to give preferential consideration to countries in compliance with

or making substantial progress in coming into compliance with their international trade obligations. As with OPIC, the

IDFC’s support would also have to take into account worker rights and environmental impact considerations.

Support could not be provided in countries and to projects benefiting persons subject to U.S. sanctions. Reflecting

OPIC’s current practice of making sure that its support is “additional” to the private sector support for investment,

the bill would explicitly require its support to supplement, not compete with, private sector support.

Coordination. The CEO of the IDFC would have to consult with the USAID Administrator and the Millennium

Challenge Corporation (MCC) CEO to coordinate activities for development purposes.

Capacity and Authorization. The IDFC’s overall exposure would be capped at $60 billion for the five-year period

after the act’s enactment, and subject to increases, compared to OPIC’s statutory exposure limit of $29 billion. The

House version of the bill would authorize the IDFC for seven years, while the Senate version would authorize the

IDFC until September 30, 2038.

Funding. Like OPIC, the IDFC would be expected to operate on a “self-sustaining” basis. The IDFC’s operations

would appear to be supported through the funds generated from its investment financing and insurance activities. In

addition, the IDFC would be authorized to issue Treasury notes and other debts, subject to a maximum cap of $1

billion.

Risk Management. A risk committee and audit committee would be established to monitor the new entity’s

performance. The IDFC also would be required to develop a performance measure system and monitor projects,

building on OPIC’s current development impact measurement system. It would be subject to reporting and auditing

requirements.

Transition. The bill includes a number of transitional provisions, including requiring the President to submit a

reorganization plan to the appropriate congressional committees within 60 days after the act’s enactment and

formally terminate OPIC.

http://www.congress.gov/cgi-lis/bdquery/z?d115:H.R.5105:



Supporters of reorganization argue that it could enhance government efficiency by eliminating

overlap of functions and reducing costs. They also argue that consolidating the U.S. government’s

development finance functions would allow the U.S. government to better leverage its suite of

development finance tools. Supporters also argue that the new DFI would help the United States

compete more effectively with China and foreign counterparts by better matching the resources

and authorities of those foreign DFIs. In addition to these rationales for reorganization, supporters

also may see the creation of a broader DFI as a way to strengthen OPIC or shield it from potential

future risk of elimination.

Critics of reorganization argue that it could incur costs through the creation of a new bureaucracy,

at least in the short run. Other concerns raised include the risk that reorganization could dilute or

undermine the effectiveness of the development finance functions at issue because OPIC and

USAID, while both focused on development, have different constituencies and approaches in

their work. For instance, although both have programs that deal with private enterprise, OPIC has

had to be self-sustaining and accordingly less of a risk-taker than USAID. Still others may argue

that a more effective way for the United States to focus on enhancing coordination of

development finance functions among agencies or to support development goals is to focus on its

activities through multilateral and regional DFIs.

Structuring a New DFI

If Congress pursues reorganization, it faces a number of issues regarding how to structure the

proposed new DFI. The proposed DFI can be viewed as a distinct new entity but also would as a

successor to OPIC. Thus, the issues raised by reorganization are discussed here as potential

changes to OPIC.

Management Structure. Congress may consider how the structure and composition of the

proposed DFI’s management structure may reflect policy priorities. Under the BUIILD Act, the

proposed DFI’s Board of Directors would vary from OPIC’s Board of Directors. The new DFI’s

nine-member Board of Directors would be composed of the Chief Executive Officer of the new

DFI, four U.S. government officials (the Secretary of State, USAID Administrator, Secretary of

the Treasury, and Secretary of Commerce—or their designees), and four private sector members.

The Chairperson of the Board would be designated by the President from among the members of

the Board, while the USAID Administrator (or his/her designee) would be the Vice Chairperson.

In comparison, by statute, OPIC’s 15-member Board of Directors is composed of 8 “private

sector” Directors (with requirements for small business, labor, and cooperatives interests) and 7

“federal government” Directors (including the OPIC President, USAID Administrator, U.S. Trade

Representative, and a Labor Department officer). The Chairman and Vice Chairmen of OPIC’s

Board are to be appointed by the President of the United States among the members of the Board.

Thus, distinctions include that the new DFI’s Board of Directors would be smaller; have more

“federal government” than “private sector” representation; not have a specific requirement to

have small business, organized labor, or cooperatives representation; and be required to have the

USAID Administrator (or his/her designee) as the Vice Chairperson of the Board. These

differences could raise questions about how the new DFI’s management structure vis-à-vis

OPIC’s management structure could affect its emphasis on various stakeholder interests in its

operations and institutional ties with other government agencies.

Length of Authorization. A question for Congress is whether to establish the new DFI as a

permanent entity or one subject to reauthorization and, if the latter, how frequently. The House

version of the BUILD Act would extend the new DFI’s authority by seven years and the Senate

version would extend it until FY2038. In considering this issue, Congress may consider looking

to OPIC. In recent years, OPIC has been subject to yearly extensions of its authority through the



appropriations process. Some argue that a multiyear or permanent authorization would enhance

OPIC’s ability to plan in the long term and provide assurances to investors about its programs.

(OPIC commitments and obligations can be made for multiyear periods extending beyond any

particular reauthorization.) Others argue that periodic reauthorizations allow for enhanced

congressional oversight of OPIC’s activities. Other DFIs tend not to be subject to a regular

reauthorization process, as they were established as “permanent” entities, but remain subject to

ongoing oversight and scrutiny by legislative bodies or executive agencies.

Exposure Limit. Congress may consider whether to modify OPIC’s statutory exposure cap to

change the capacity of the proposed new DFI. OPIC currently has a $29 billion exposure cap and

in recent years has been nearing it. The BUILD Act would set the new development finance

agency’s exposure at $60 billion for five years, subject to increases based on certain

considerations. A larger exposure cap would allow the new DFI to take on more projects and have

the potential to have a greater development impact, yet it might increase risks to U.S. taxpayers if

the projects that were supported experienced defaults or were subject to claims recoveries.

Authorities. Congress may examine whether to modify OPIC’s existing authorities.

Equity authority. The BUILD Act would give the new DFI the authority to take a

minority equity stake in investment funds, subject to limitations. Supporters of

such authority argue that the new DFI would be able to use the higher returns

generally associated with equity investments to support more projects, as well as

be more competitive vis-à-vis foreign counterparts, given that most other DFIs

have equity authority.51 OPIC asserts that the ability to invest in investment funds

as a limited partner could help diversify its total exposure in the long run through

its “incremental return,” as well as enable it to partner more effectively with

other DFIs.52 However, there remains resistance to the notion of the U.S.

government taking an ownership stake in a private enterprise. Critics argue that

equity authority would require more resources in managing an investment,

compared to one supported through debt instruments alone, and could lead to

additional risk and financial exposure.

Technical assistance. The BUILD Act would give the new DFI the authority to

make grants for feasibility studies and other technical assistance. Presently, OPIC

has limited authority to provide technical assistance for certain investment

projects in Africa. Other U.S. government agencies focus more specifically on

technical assistance for foreign policy programs, including the Department of

State, USAID, and TDA—sometimes in collaboration with OPIC. For example,

in the wake of the “Arab Spring,” OPIC approved $500 million in lending to

Egypt and Jordan to support small businesses in those countries, and USAID

provided grant funding and technical assistance.53 Those in favor of technical

assistance capacity for the DFI contend that this function would enhance the

agency’s effectiveness. Nevertheless, the new DFI’s technical assistance function

could overlap with other government agencies’ roles. The technical assistance

issue has prompted some to question the rationale for excluding TDA from the

51 Benjamin Leo, Todd Moss, and Beth Schwanke, OPIC Unleashed: Strengthening US Tools to Promote Private-

Sector Development Overseas, Center for Global Development, August 2013. 52 See for example, OPIC, FY2017 congressional budget justification, p. 16. 53 OPIC, “OPIC Board Approves $500 Million for Small Business Lending in Egypt and Jordan,” press release, July 1,

2011.



consolidation. Others point out that TDA aims to support U.S. exports through its

programs to support economic development overseas.

Policy Parameters for Project Support. Congress may consider what requirements and

limitations to impose on the new DFI’s support for projects. Through such conditions, Congress

can exercise its authority over the DFI and guide its activities more directly, even if it is not

involved in approving individual projects. At the same time, it may wish to consider the impact of

layering conditions on the new DFI’s support on its flexibility and agility, including vis-à-vis

other DFIs, which may attach different terms and policy conditions to their support. Many of the

BUILD Act’s provisions mirror OPIC’s current parameters, such as requirements to take into

account worker rights and environmental impact factors. Some provisions would vary, including

the following:

Scope of geographic operations. OPIC, by its statute, must give preferential

consideration to investment projects in less-developed countries and restrict its

support in higher-income countries; it has interpreted this requirement to allow it

to support projects in higher-income countries that are highly developmental or

focus on underserved areas or populations.54 The BUILD Act also would

prioritize support in low-income or lower-middle-income economies, but set a

higher bar for providing support in upper-middle-income countries, including

subjecting it to a national interest determination by the President. This could

enhance the DFI’s development impact in the poorest regions, but also inhibit its

impact to the extent that investors prefer supporting projects that are in higher-

income countries but that are nevertheless development oriented.

“U.S. nexus” requirement. While OPIC support is only available to investors

that have a U.S. connection, the new DFI would only have to give preferential

consideration to projects sponsored by or involving the U.S. private sector. Such

a modification could expand the DFI’s development impact, but at the same time,

decrease benefits to U.S. employment interests.

Risk Management. The adequacy of the proposed new U.S. DFI’s risk management practices

could be of interest for Congress, as the BUILD Act would expand the new DFI’s exposure cap

and its authorities. Some may argue that any increased risks relative to OPIC would be limited,

and that the proposed DFI would have the organizational structure to manage risks properly, such

as through the Chief Risk Officer and audit and risk committees prescribed by the BUILD Act.

Others say that technical assistance conducted by the new DFI for projects could help to

strengthen projects, and lead to projects that are more financially sound. Still others may argue

that for the new DFI to be effective, it must be willing to take on risks, because it is in those

riskier markets where it will be able to make the most the difference in terms of development.

Oversight. The BUILD Act would establish an Inspector General (IG) specific to the new DFI.

Presently, the USAID IG has legal authority to conduct reviews, investigations, and inspections of

OPIC’s operations and activities. Given the differing roles of OPIC and USAID and the fact that

the new DFI, as a merger, would be a distinctly new entity, one view could be that there is a need

to establish an IG specific to the new DFI.55 Another view could be that the current OPIC-USAID

arrangement suffices and no additional resources should be directed to creating a new IG.

54 GAO, Overseas Private Investment Corporation: Additional Acts Could Improve Monitoring Processes, GAO-16-

64, December 2015, p. 10. 55 See, for example, H.R. 2548 and H.R. 314, introduced in the 113th Congress to establish an OIG within OPIC.



Measuring Success. If Congress structures a new DFI, a consideration is how to measure the

proposed agency’s performance. Under the BUILD Act, the new DFI would be required to

develop a performance measurement system and monitor projects, using OPIC’s current

development impact measurement system as a starting point. Measuring development impact can

be complicated for a number of reasons, including definitional issues, difficulties isolating the

impact of development finance from other variables that affect development outcome, challenges

in monitoring projects for development impact after DFI support for a project ends, and resource

constraints. Comparing development impacts across DFIs is also difficult as development

indicators may not be harmonized. To the extent that the proposed DFI raises questions within the

development community about whether it would be truly “developmental” at its core, rigorous

adherence to development objectives through a measurement system will likely be critical to

gauging its effectiveness. Moreover, Congress may wish to take a broader view of U.S.

development impact, given the active U.S. contributions to regional and multilateral DFIs.

Funding

If Congress decides to establish a new DFI, it will likely have to consider how to fund it. Under

the BUILD Act, the new DFI would be directed to be “self-sustaining” like OPIC and similarly to

fund its operation through the fees and other revenues it collects. Congress may consider to what

extent the DFI’s potentially expanded capacity and functions, as well as other features, may shape

its ability to operate on a self-sustaining basis or not. For example, one consideration is how the

new DFI would fund its grant-making functions. The Administration proposal allocates $56

million in Economic Support and Development Fund (ESDF) money for development finance

related programming and authorizes “additional transfers” of funds from USAID.56 OPIC

leadership points to the ESDF as a possible way to fund grants by the new DFI.57 Some

contemplate that the DFI’s grant-making activities would be limited.

Impact on USAID and U.S. Development Objectives

If enacted into law, both the proposed legislation and the Administration’s FY2019 budget

proposal on the new DFI would have an impact on USAID, although, lacking detail, the full

extent of these initiatives’ impact is not yet clear. The Administration proposal and the legislation

both call for USAID to transfer the Development Credit Authority to the new DFI. The legislation

alone calls for further removal from USAID of the enterprise funds and the Office of Private

Capital and Microenterprise. This section discusses possible consequences for USAID.

Removal of the DCA. The DCA is one of many assistance tools available to USAID. It has

generally been used by the agency to produce specific development outcomes. Almost all DCA

projects have originated through the country- or region-based missions which identified a

problem and used DCA guarantees to help address the problem, often in conjunction with an

array of other project activities, including technical assistance and training that, in their totality,

made the loans more effective. Supporters of the proposed reorganization assert that consolidating

DCA with other development finance functions would increase the efficiency of these functions.58

56 ESDF is a proposed account currently encompassing the Economic Support Fund, Development Assistance,

Democracy Fund, and Assistance for Europe and Eurasia accounts. 57 U.S. Congress, House Committee on Foreign Affairs, Financing Overseas Development: The Administration's

Proposal, Testimony of Ray W. Washburne, President & CEO, OPIC, 115th Cong., 1st sess., April 11, 2018. 58 Benjamin Leo and Todd Moss, Bringing US Development Finance into the 21st Century: Proposal for a Self-

Sustaining, Full-Service USDFC, Center for Global Development, March 2015, pp. 15-16.



However, former USAID Administrator Andrew Natsios and former Associate Administrator Eric

Postel argue that removing the DCA from USAID would end the integration of this tool in that

broader project design, making its use as a development tool less effective.59 As discussed below,

proponents suggest that, with effective interagency coordination, USAID could still access the

full benefits of DCA guarantee instruments.

Removal of the Enterprise Funds. Some observers say that the existing authorities for the

Europe/Eurasia enterprise funds, which the legislation would transfer to the proposed DFI, are

specific to the time and place in which they operated. Those older funds are also substantially

different from the two current funds, which, like existing models of investment funds managed

directly by OPIC, are more restricted in their range of activities to equity investments and

lending. The new USAID enterprise funds, however, remain primarily funded by U.S.

government grant funds, while OPIC’s are supported with private sector money. The USAID

model is also private-sector-managed, likely requiring close USAID oversight and an in-country

presence to ensure the funds fulfill a development, rather than a purely for-profit, mission. As

such, their removal to an agency without either feature may make this model less effective as a

development instrument. Relatedly, it has been argued that if the new DFI would have the

authority to conduct equity investment, there is no need for an enterprise fund.60

Removal of the Office of Private Capital and Microenterprise (PCM). PCM conducts both a

research/project pilot function in identifying opportunities to draw in private capital and a

technical expertise resource function benefitting USAID missions. The latter function would

likely be lost if the office is transferred to the new DFI or, as some have noted, would simply

have to be reintroduced in some other form if USAID is to play any continuing role in this sphere.

It is also not clear whether legislators intend to transfer microfinance functions out of the agency

as well—PCM does little on this issue, as microenterprise activities have been incorporated into

other sectors and mechanisms.61

Transfer of these financing functions, whether for efficiency or nonduplication purposes, could

have unintended impacts on USAID’s overall development efforts. For example, USAID has

employed loan guaranties in support of its broader health, agriculture, environment, and other

sector programs. To a more limited extent, it has supported equity investment programs separate

from the enterprise funds in Pakistan and elsewhere. Efforts to leverage private capital in support

of development are conducted throughout the agency and in every sector with or without PCM

assistance. To the extent that the DFI proposals would prevent duplication of methodologies that

employ private funding, many USAID development efforts could be made less effective.

In addition, the proposal calls for the transfer of $56 million from traditional USAID accounts to

the new DFI to be used for development finance-related programming, including advisory

services, technical assistance, capacity building, and credit subsidies. This funding, and

59 Eric Postel and Andrew Natsios, “Opinion: The Development Credit Authority Needs to Stay in USAID,” Devex,

February 26, 2018, at https://www.devex.com/news/opinion-the-development-credit-authority-needs-to-stay-in-usaid-

92184; and Teresa Welsh, “Former DCA Head Warns of Perils of Spinning Agency Into New US Development

Finance Corporation,” Devex, April 10, 2018, at devex.com. 60 See comments by Ben Hubbard, former director of DCA, at CSIS event, What is the Right Division of Labor

Between USAID and the Proposed Development Finance Corporation?, April 6. 61 Maintaining a “microenterprise” office fulfills a legislative mandate in the Foreign Assistance Act (sec. 252 (b)(1).

USAID, 2016 Microenterprise Results Report, undated.



“additional transfers” for which the proposal seeks authority, would otherwise presumably remain

with USAID to achieve similar objectives.62

As currently constituted, the proposals imply that cost savings and operational efficiencies would

ensue from concentrating development finance capabilities in one institution. It is unclear how the

transfer of offices, personnel, and loan authorities from one agency to the next would save funds.

It is also unclear how the new DFI would be able to efficiently conduct its activities without

seeking to duplicate the features that give USAID its advantage as a development programming

and implementation agency, namely its convening power, development know-how, and mission

presence. One possible answer that the legislation implies is close coordination (see below).

Interagency Coordination

If Congress determines that consolidation is the best way to proceed, a critical issue is how to

ensure sufficient, long-term interagency coordination between the new DFI and other federal

agencies. The legislation suggests that coordination between the DFI and two key development

agencies—USAID and the Millennium Challenge Corporation (MCC)—would be a necessary

feature of the proposal by requiring appointment of a Chief Development Officer who would be

responsible for coordinating policy and its implementation with the development missions of its

sister agencies. The Administration budget proposal similarly anticipates the DFI’s “strong

linkages” to USAID, suggesting that it would work “closely with the missions and other parts of

USAID to enhance the enabling environment for private sector investment.”63

Supporters of the DFI proposal appear to recognize the role of USAID missions in identifying

and funding financing needs and USAID’s Development Credit Authority in implementing those

financing programs. Many supporters of the DFI proposal believe that this system should

continue even with DCA consolidation into the DFI. They argue that the proposal might have

positive benefits for USAID if its relationship with the DFI provides USAID missions with

access, not only to its former DCA guarantee instrument, but to the whole range of finance tools,

including equity and risk insurance, that the DFI would manage. Similarly, the DFI would be able

to significantly expand its overseas presence through access to USAID’s missions. The trick, as

some observers have noted, is to make the process for USAID missions to draw on DFI tools and

the DFI to draw on USAID—the coordination between the two distinct agencies—“seamless.”

The history of foreign aid interagency cooperation and coordination suggests the difficulties of

achieving smoothly functioning coordination. In the past decade alone, commentators have

pointed to the fragmentation of development assistance among multiple players, the problems of

coordination between the State Department Office of the Global AIDS Coordinator and its

program implementers, tensions between State and USAID in Pakistan and Arab Spring

countries, and the lack of complementarity between MCC and USAID (despite the latter’s

presence on the MCC Board of Directors) as examples of interagency difficulties.64

Different agencies develop different corporate cultures and focus and observers note strong

distinctions between OPIC and USAID. Currently, OPIC provides relatively larger-scale

62 CBJ, FY2019, Department of State, Foreign Operations, and Related Programs, p. 130. 63 CBJ FY2019, Foreign Operations, Appendix 2, p. 73. 64 U.S. Global Leadership Coalition, Report on Reports, September 2017, p. 3; Jeremy Konyndyk and Cindy Huang,

Center for Global Development, A Practical Vision for US Development Reform, July 20, 2017, p. 9; USAID Office of

Inspector General, USAID Top Management Challenges and OIG Initiatives, December 8, 2016, p. 5; Department of

State Inspector General, Inspection of the Office of the U.S. Global AIDS Coordinator, September 2013, p. 6.



financing, has been more oriented toward infrastructure historically but has offered support for

financial and other noninfrastructure investments lately, and can only support projects that have

meaningful involvement by the U.S. private sector.65 USAID works at a significantly more small-

scale, locally oriented level, and has been described as more risk tolerant in its development

efforts as it works in a much less structured environment. Each agency approaches development

in vastly different ways—the fact that they do not do the same deals now suggests these

differences.66 Some have suggested that OPIC is unlikely to understand the myriad USAID

regulations and legislative restrictions under which it operates and question whether it or the DFI

would be able to work successfully in the USAID mission environment (and vice versa).

Some observers believe that, for the new DFI to effectively play a development assistance role in

support of USAID, coordination should be hard-wired into the authorizing legislation, rather than

depending on impermanent interpersonal relationships or shared board membership to effect a

temporary cooperation. One suggestion is a dual-hatted—both DFI and USAID—Chief

Development Officer, to help ensure that the DFI operates in a way that would meet USAID

needs in the field. Another possible path forward is to require that DCA guarantees continue to

draw their funding from USAID mission budgets, thereby ensuring that the DFI views USAID as

a key customer. In addition, the metrics required by the legislation to measure development

success could include support for USAID programs as an indicator.

In addition to examining interagency coordination from a development perspective, Congress also

may consider coordination issues from the export promotion perspective. OPIC has a strong

private sector orientation, and investment is linked to U.S. exports and other economic impacts.

OPIC and Ex-Im Bank have a history of collaboration, including on financing projects under

Administration initiatives such as Power Africa and conducting outreach to small businesses on

U.S. government financing resources.67 OPIC also is a member of the interagency Trade

Promotion Coordinating Committee (TPCC)68 and involved in Administration export promotion

efforts.69

To the extent that the proposed DFI’s role with respect to the private sector is different

from that of OPIC, Congress may consider to what extent the proposal would affect the current

synergies between OPIC and Ex-Im Bank, as well as broader implications for interagency

coordination of the U.S. government’s export promotion activities.

Competitiveness and Future Rules-Setting

Congress may examine how the new DFI would support U.S. businesses in competing with

foreign businesses for overseas investment opportunities. For example, how would the capacity,

authorities, policy parameters, and other features formulated by Congress enable or constrain the

DFI from supporting U.S. private investment overseas for development? What policy trade-offs

would these features entail?

65 OPIC direct loans range from $600,000 to $50 million. Loan guarantees generally range from $10 million to $250

million. 66 According to observers, during the past four years of information sharing between the two agencies, there has been

no duplication of effort. 67 OPIC, FY2017 CBJ. 68 The TPCC is an interagency body whose purpose is to develop a government-wide strategic plan to carry out federal

export promotion and financing programs and to propose a unified export promotion budget to the President. President

George H. W. Bush established the TPCC in May 1990, and Congress subsequently codified it in the Export

Enhancement Act of 1992 (P.L. 102-429, Title II). 69 See TPCC and Export Promotion Cabinet, National Export Initiative/NEXT: Strategic Framework, May 13, 2014.



The new DFI’s potential role in supporting U.S. strategic economic interests also may be of

congressional interest. The Trump Administration has cast development finance reorganization as

a way to advance U.S. influence and serve as an alternative to state-directed investment models,

notably by China. The National Security Strategy stated, “American-led investments represent the

most sustainable and responsible approach to development and offer a stark contrast to the

corrupt, opaque, exploitive, and low-quality deals offered by authoritarian states.”70 Given that a

U.S. DFI would not be able to match the resources of China’s DFIs, Congress may examine how

the new DFI could deploy its resources strategically to advance U.S. policy objectives. At the

same time, Congress may examine how a more strategic orientation for the DFI would align with

the typically demand-driven nature of U.S. government support for private sector activity, as has

been the case for OPIC.

In addition, Congress may consider whether to advocate for creating international “rules for the

road” for development finance. Such rules could help ensure that the proposed DFI operates on a

“level playing field” relative to its counterparts, given the variation in terms, conditions, and

practices of DFIs internationally. U.S. involvement in developing such rules could help advance

U.S. strategic interests. However, such rules would only be effective to the extent that major

suppliers of development finance are willing to abide by them. For example, China is not a party

to international rules on export credit financing, though it has been involved in recent

negotiations to develop new rules on such financing.

Outlook While there is bipartisan, bicameral support in Congress for moving forward with development

finance reorganization, the current proposal presents Congress with a number of issues in terms

of structuring the proposed new DFI and the implications of reorganization. Development finance

is a cross-cutting issue implicating U.S. interests in terms of foreign policy, national security,

economic interests, and international investment. Combining public support with private sector

capital, development finance also intersects with a range of stakeholder interests and any

reorganization may raise questions about how to balance various policy goals. Thus,

consideration of the BUILD Act or any other legislation introduced to reorganize federal

development finance functions may be an active area of debate for Congress.

70 The White House, National Security Strategy of the United States of America, December 2017, p. 39.



Appendix. Comparison: OPIC and Foreign DFIs

Table A-1. Comparison of OPIC and Selected Bilateral Foreign DFIs

OPIC

(U.S.)

CDC

(UK)

DEG

(Germany)

Proparco

(France)

CDB

(China)

JBIC

(Japan)

2016 Portfolio/ Outstanding Commitments

$21.5 billion

£3.8 billion ($5.5 billion)

€8.6 billion ($10.6 billion)

€5.9 billion ($7.3 billion)

10.3 trillion yuan ($1.6 billion)

¥17 trillion ($158 billion)

Year Est’d/ Began Operations

1971 1948 1962 1977 1995 2012

(reorganized)

Structure/ ownership

Wholly owned

U.S.

government

corporation

Wholly owned

by UK

government

Wholly owned

by KfW, a

German

development

bank that is 80%

owned by

German

government

Limited liability

company,

subsidiary of

Agence Française

de Dévelopment,

which is main

shareholder;

other

shareholders are

public and

private

institutions

State "policy"

bank, Chinese

Ministry of

Finance and other

public/state-

owned enterprise

shareholders

Policy-based financial

institution wholly

owned by the Japanese

government

Mandate Mobilize U.S.

private capital

in less

developed

countries,

complementing

U.S.

development

objectives

Support growth

of business and

job creation

across Africa

and South Asia

Promote

business

initiatives in

developing and

emerging

markets as a

contribution to

sustainable

growth and

improved living

conditions of

local populations

Foster private

investment in

emerging and

developing

economies with

the aim of

supporting

growth and

sustainability

Support China's

economic

development in

key industries and

underdeveloped

sectors

Contribute to the

sound development of

the Japanese and the

international economy

and society

Key Services Finance,

political risk

insurance

Equity, finance Equity, finance,

technical

assistance

Equity, finance,

technical

assistance

Equity, finance Equity, finance

Country GDP (current U.S.$)

$18.6 trillion $2.6 trillion $3.5 trillion $2.5 trillion $11.2 trillion $4.9 trillion

Source: CRS, based on information available about DFIs in their annual reports and other sources.

Notes: Data on development finance activity size may not be directly comparable due to differences among the

DFIs, such as in operations, metrics, reporting, and fiscal years. In addition, the size amounts reported may

reflect more than development finance, such as for entities that conduct both export and investment financing.

Conversions to U.S. dollars based on Federal Reserve exchange rates on April 13, 2018. Finance may include

loans and guarantees, as well specialized types of financing, such as project financing.



Author Contact Information

Shayerah Ilias Akhtar

Specialist in International Trade and Finance

[email protected], 7-9253

Curt Tarnoff

Specialist in Foreign Affairs

[email protected], 7-7656

Acknowledgments

Jamie L. Hutchinson, Visual Information Specialist, and Amber Hope Wilhelm, Visual Information

Specialist, provided assistance with the graphics in this report.

mailto:[email protected]

mailto:[email protected]

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